Coal 2017 Analysis and Forecast to 2022

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Ashlyn Shields
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1 Coal 217 Analysis and Forecast to 222 Keisuke Sadamori. Director Energy Markets and Security New Delhi, 18 th December 217 IEA

2 Coal markets update marks the largest 2-year drop in global coal demand - The drop occurred in spite of economic growth 216 was the 3rd consecutive year of decline in China and the 2nd in US - Coal to gas switch in power generation in US and Europe, and in industrial/residential sector in China together with renewables were the drivers India and ASEAN region remained centres of growth - Increasing power demand to support economic/ social development underpins coal use A coal demand rebound is expected in 217 led by China, India and US - Prices have remained strong throughout the year. Is this rebound a blip or a new trend?

3 TWh TWh TWh TWh Power systems are in transformation Change in coal power generation, United Kingdom 2, United States 15 1,5 1 1, 5 5 Coal generation 212 Demand growth Renewables Natural gas Nuclear & others Coal generation 216 Coal generation 212 Demand growth Renewables Natural gas Nuclear & others Coal generation Germany 6, China , 2, Coal generation 212 Demand growth Renewables Natural gas Nuclear & others Coal generation 216 Coal generation 212 Demand growth Renewables Natural gas Nuclear & others Coal generation 216 Whereas power dynamics are country-specific, sluggish power demand, cheaper gas and renewables expansion are squeezing coal in many countries across the globe

4 kwh/capita But power demand growth is not over Per capita power demand in select countries compared with OECD and world average 1, 9, 8, OECD average 7, 6, 5, 4, 3, World average 2, 1, 3,7 Millions of inhabitants Bangladesh Pakistan Asean India China Some populated countries with low per capita power consumption will ramp up power generation. In a few of them, coal will provide a good share of the additional electricity

5 USD/t Will (when) prices start correction? 12 Weekly thermal coal prices in Europe Spot prices Forward curve in January 216 Increasing China coal demand and imports in 217 have been pushing prices up

6 CNY/t USD/t A new force to drive prices 8 Prices in Europe and China vs targets 12 Correlation 92 % Bohai-Rim steam-coal Northwest Europe (ARA) (right axis) Chinese policies targeting the green range gives a strong support international prices to stay within an equivalent margin

7 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 USD/t Coking coal prices: two spikes in half a year 35 Spot prices of thermal, PCI and hard coking coal in Australia Newcastle Australian prime hard coking Australian ULV PCI The volatility of spot coking coal prices shows the fragility of its supply chain

8 Mtce Global coal demand stagnates Coal demand forecast , Total demand 5, Other 4, 3, European Union United States ASEAN India 2, 1, China After the staggering growth in and the decline thereafter, coal demand will stabilize at the current level

9 The geography of coal demand does matter Beijing-Tianjin-Hebei 37 Other regions Annual coal consumption in boilers to be phased out (Mt) UHV under construction Yangtze river delta and other Eastern China 7 Pearl river delta (Guangdong) Whereas further development of UHV lines will move demand from coastal areas to the West and North, coal boilers will be replaced by gas and electrical solutions

10 Mt Increasing production in India is impacting international markets Coal imports avoided since Solar + wind Domestic coal production Looking ahead, performance of Coal India is key

11 GW TWh Remaining US coal is gaining resilience Coal capacity additions and coal power generation in US 15 2, , 1,5-5 1, New capacity Retired capacity Net capacity addition Coal generation (right axis) After closure of high-cost mines and inefficient coal power units, the decline of the coal generation will slow down. Gas prices are key

12 Mtce Thermal coal trade in contraction with many caveats Difference in thermal coal exports/imports by country ( ) Imports Exports Traditional uncertainty about China s imports has spread to many other countries.

13 CCUS is making real progress Illinois Industrial CCS (Source: ADM) Petra Nova (Source: NRG) Quest - Scotford Upgrader (Source: Shell) Al Reyadah (Source: CSLF)

14 CCUS is making real progress CCUS installed on existing assets which have sustainable business model Low technology risk ( keep it simple approach) Attractive, well understood storage geology or enhanced oil recovery opportunity Coalition of public and private stakeholders Clear source of revenue to cover CCUS costs over asset lifetime

15 Despite recent progress, CCUS needs a boost The IEA, key countries and the world s largest energy companies have shared a commitment to advance CCUS

16 Where are coal markets going? Global coal demand is set to stagnate through Forecast remains fundamentally the same as the last year s forecast Coal demand in China will decline slowly, with annual fluctuations determined by market needs - In 217, economic rebounding and low hydro output are driving coal demand growth in China after three years of decline Growth will be concentrated in India, Southeast Asia and a few other Asian countries - Despite renewable push and lower gas prices, additional power demand will be partially met by coal Global trade could contract, but uncertainty is at highest - Imports increase in China and Korea in 217 are not sustainable; India s success to rein in imports will be key Coal use will be constrained in the longer term without Carbon Capture, Utilisation and Storage - CCUS is needed to meet our climate ambitions. The IEA is working to engage industry and policymakers to build new momentum.

17 IEA

Coal markets update marks the largest 2-year drop in global coal demand - The drop occurred in spite of economic growth 216 was the 3rd consec

Coal markets update marks the largest 2-year drop in global coal demand - The drop occurred in spite of economic growth 216 was the 3rd consec Coal 217 Analysis and Forecast to 222 Keisuke Sadamori. Director Energy Markets and Security IEEJ Tokyo, December 217 IEA Coal markets update 214-216 marks the largest 2-year drop in global coal demand